A decision taken five years ago to ban the export of unprocessed minerals came into effect in Indonesia on January 12 this year. Mandated by a Mining Law passed by the Indonesian Parliament in 2009, the ban is aimed at boosting regional economic development and allowing local mining companies to operate.

Indonesia’s Coordinating Economic Minister Hatta Rajasa said that the decision to impose a ban on unprocessed mineral ore exports was taken after considering the threat of massive losses and layoffs by mining companies.

As soon as the ban came into effect, custom officials were stationed at seaports across the country to supervise all export activity and ensure total compliance with the ban.

However, the Indonesian government had a last minute change of heart and decided to ease the ban on the export of copper, iron ore, lead, and zinc concentrates bringing much relief to U.S. mining giants like PT Freeport Indonesia and PT Newmont Nusa Tenggara that had warned of massive layoffs if the ban was imposed without exemptions.

However, no such exemption was extended to the country’s nickel and bauxite imports, which threatened the future of many nickel miners in Indonesia in addition to hurting the Chinese stainless steel and aluminum industries. The other minerals that have to be processed before they can be exported out of Indonesian shores include tin, chromium, gold and silver.

While the Indonesian government hopes that the move will eventually lead to higher profit margins for the country’s miners by forcing them to process their mineral ores before exporting them, there’s a fear that a short-term cut in foreign revenue could lead to a higher current account deficit and undermine investor confidence in the already beleaguered Indonesian economy.

Indonesia is the biggest exporter of nickel ore, refined tin and thermal coal. It is also home to the world’s fifth largest copper mine and top gold mine. At $10.4 billion, mineral shipments accounted for nearly 5 percent of Indonesia’s total exports in 2012.

The proposed regulation could cut government revenue by as much as 10 trillion rupiah ($820.34 million). But the government seems ready to take the immediate financial hit in the hope that the ban may pay dividends in the long run.

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